The Effects of Inflation Volatility on Financial Performance of Savings and Credit Cooperative Societies in Kisumu City, Kenya

Abstract

SACCOs are a major contributor to the total financial industry development and consequently the nation's economic development. The SACCOs' contribution to the gross domestic product of Kenya is over forty five percent. Inflation volatility has generally affected the ability of the financial sector to allocate resources effectively. SACCOs being part of the financial industry are not spared by the dynamics of inflationary factors. Despite these factors impacting on the financial performance of SACCOs, there is limited research on the problems of inflation volatility as a course of these problems. The study, therefore, sought to fill the knowledge gap that exists due to limited scholarly research on the effects of inflation volatility on the financial performance of SACCOs. The objective of the study was to investigate the effects of inflation volatility on financial performance of SACCOs in Kisumu City. The study adopted a descriptive research design where data was collected from seven SACCOs in Kisumu City. During the study, both secondary and primary data was used. The secondary data related to SACCOs' performance were collected from audited financial statements covering a period of nine years, i.e. 2006 to 2014 and inflationary related data was collected from CBK web-site for the same period. Primary data was collected from two key officers from each SACCO by use of semi-structured questionnaires. Data was then analyzed by use of regression analysis and summarized in tabular and chart formats. From the findings, the study found that there exist a strong negative correlation coefficient between annualized inflation rates and the SACCOs financial performance. This implies that incremental inflationary forces had a diminishing effect on the SACCOs' financial performance. The study, therefore recommended that SACCOs need to embrace proactive and collective approach in monitoring and projecting inflationary variation so as to shield them from any form of adverse volatility.